Industry At A Glance: How much additional market risk can cattle feeders absorb?

While feeder cattle prices are off their highs from 2014, the relative strength of the feeder cattle market continues. This week’s Industry At A Glance depicts an important relationship surrounding the feeder cattle market. Prices on the horizontal axis represent predicted feeder cattle prices (based on data between 2005 and 2013), while feeder prices on the vertical axis reflect the actual CME Feeder Cattle Index.

Every week since Jan. 1, 2014, has resulted in the CME Feeder Cattle Index pricing above the predicted value. In other words, cattle feeders are aggressively chasing cattle. Perhaps most surprising, that trend has continued in 2015 despite negative closeouts and a stagnant fed cattle market (versus 2014 in which cattle feeders were seemingly perpetually rewarded to bet on a surging fed market).The procurement of feeder cattle is a difficult and complex situation each and every week. The primary question going forward surrounds how long this positive feeder market scenario can persist. Much of the answer revolves around the feeding sector’s risk appetiteWith this analysis in mind, how do you foresee the feeder market shaping up in the coming weeks and months? Will cattle feeders continue to support the market by chasing cattle to ensure operating at optimal capacity levels? Or will negative closeouts begin to drive prices lower?